Compromise agreements
If you believe that your working relationship is coming to an end but who do not wish to resolve grievances with your employer in the Tribunal, you can enter into a compromise agreement.
What is a Compromise Agreement?
A compromise agreement is a legally binding agreement, usually between an employee and employer, in which the parties want to set out the terms upon which they have agreed for a contract of employment to come to an end or a dispute between them to be resolved. Most commonly they are used in situations involving redundancy and dismissal. Typically it will provide for a severance payment by the employer, in return for which the employee agrees not to bring a claim against the employer in the courts or employment tribunal. Usually the agreement will also deal with issues such as the length of notice and for a “payment in lieu” to be made.
When are compromise agreements used?
Increasingly, employers are using compromise agreements to prevent the risk of future complaints being made to a tribunal, especially in cases of redundancy and are recognised as the only way a claim can be validly resolved without recourse to a tribunal. They are also widely used in other employment termination situations such as dismissal, where conflicts between an employer and employee have arisen or where the employee wishes to leave in circumstances where the relationship with the employer has broken down.
What will a Compromise Agreement usually contain?
There are a number of usual provisions which a compromise agreement will contain and employmentlawhelp can advise you fully upon these. They include:
- a full breakdown of the payments made by the employer to the employee including the extent to which the any will be made free of tax. Currently up to £30,000 can be paid by way of compensation without there needing to be a deduction of tax. However, it will be usual for the employee to give the employer a tax indemnity.
- a confidentiality clause dealing not only with the employers trade or business secrets and details of business affairs but also with the terms of the agreement itself.
- a requirement that neither party make derogatory comments about each other
- restrictive covenants - either continuing existing covenants in the contract of employment or imposing new covenants
- confirmation of the various pieces of legislation under which a claim will not be pursued, including discrimination legislation and the Employment Rights Act 1996
Why have a compromise agreement
Compromise agreements can provide an effective method of avoiding legal proceedings and the resulting costs.
Often a compromise agreement is the only way in which an employer can be certain that they will not end up in the employment tribunal or court as a result of the departure from the company of the employee. Their effect is to make any agreement reached a full and final settlement of any claims which an employee may have against the employer.
In addition, a compromise agreement can be a much less stressful means of ending an employment relationship.
Employmentlawhelp can help advise, negotiate and draft compromise agreements for you which will ensure that you achieve the best outcome possible. Call us on 084 4804 4800
